Whilst the ISA allowance from April 2016 remains unchanged at £15,240, in this year’s Budget the Chancellor has announced that from April 2017, the ISA limit will increase to £20,000.
The Chancellor has focussed his attention on the next generation and is extending freedom and choice towards the younger generation.
As the Government believes that savers prefer the simplicity of an ISA over a pension, the Chancellor announces the launch of the Lifetime ISA from 6 April 2017.
This will only be available for those under 40 and means that savers can put away up to £4,000 each year and benefit from a Government bonus of 25%.
At first glance this looks very much like the Help-to-Buy ISA, which became available on 1 December 2015, but savers wishing to buy their first home can use either the Help-to-Buy ISA or the Lifetime ISA, but not both. Transfers from the Help-to-buy ISA can be made to the new Lifetime ISA too.
Contributions can be made until age 50 and used for property purchase, but money not used for this purpose will not be accessible until age 60, although withdrawals will be allowed for a ‘small fee’.
This dual purpose ISA provides people the opportunity to save in one place for both retirement and their first home purchase.
In other pension news, the Government has committed to helping the next generation clearly view their pension savings in the one place, by launching a pension dashboard, although this is not expected to materialise until 2019.
The Government is also to consult on the introduction of a new Pension Advice Allowance during summer 2016, which will give people under the age of 55 an opportunity to withdraw up to £500 tax free from their defined contribution (money purchase) pensions to redeem against the cost of financial advice in relation to their retirement planning.